The Securities Offering Process Explained: What We Actually Do as a Securities Law Firm

The securities offering process is a complex, multi-step endeavor, crucial for businesses using private capital, especially in the fields of real estate syndication, start-ups, venture capital, and corporate finance. This article draws insights from Gene Trowbridge, Esq. CCIM, Founding Partner of Trowbridge Nieh LLP, and Dave Utley, MBA, the Operations Manager at Trowbridge Nieh LLP, to provide an overview of the securities offering process and some of the services our firm provides.

Initial Consultation and Legal Framework

The relationship begins with an initial consultation between an attorney from the Trowbridge Nieh LLP legal team and the client(s). This “homework call” is an essential first step in understanding the client’s goals, the asset in question, and their fundraising plans. Gene Trowbridge, Esq. CCIM emphasizes the importance of this step for setting a clear path forward and determining the appropriate exemption for your offering.

Following the consultation, a fee agreement is drafted. This agreement lays out the terms of engagement between the client and the attorney, detailing aspects like costs, expectations, and responsibilities. An important component of this is the “bad actor questionnaire,” a compliance measure introduced under the JOBS Act, ensuring the integrity of those involved in the securities offering.

Entity Formation and Regulatory Compliance

The real estate syndication process typically involves the formation of two Limited Liability Companies (LLCs) – one for managing the operation and the other for owning the property or asset. This process requires meticulous attention to state regulations and often involves appointing a registered agent. Our legal team handles most of these details for you.

The next step is obtaining a tax ID number (EIN) for the newly formed entities, a crucial step for the government to track business activities for tax purposes. Inexperienced syndicators should be wary of falling for deceptive websites posing as IRS services, an all-too-common scam which underscores the need for due diligence. Anyone can obtain an EIN on the IRS website for free.

Document Preparation and Investor Engagement

An attorney outlines the creation of critical documents for the securities offering, starting with the private placement memorandum (PPM). This document tells “the story of the offering”, ensuring it’s in compliance with SEC regulations. It is followed by the operating agreement, which sets out the rules for running the company, and the subscription agreement, which is the document the investor gives to the syndicator to make an offer to invest. The subscription agreement contains a questionnaire, which seeks information about the investor, such as how experienced and knowledgeable the investor is and whether the investor is accredited.

The PPM tells the story of the deal.

-Gene Trowbridge, Esq. CCIM

Once the attorney has produced the offering documents, the Trowbridge Nieh LLP legal team will send the client a Limited Power of Attorney. This authorizes our team to get EDGAR codes from the SEC and to file the Form D, which is a notice alerting the SEC that the client is raising investor money through an offering.

State Compliance and Final Steps

Once the funds are raised, and the syndicator breaks impounds (i.e. uses investor funds), the states where investors reside must be informed. This process, facilitated by the EFD system, requires filing information about investors, the amounts invested, and a fee which ranges from state to state. Our legal team’s role here is instrumental, as managing these filings efficiently will ensure compliance across states.

The securities offering process is a collaborative effort between legal experts, clients, and regulatory bodies. The expertise of professionals like the team at Trowbridge Nieh LLP in navigating this complex terrain is invaluable for ensuring legal compliance and successful capital raising. This article provides a glimpse into the intricacies of securities offerings, particularly in real estate syndication, and the roles played by various parties in this complex process. If you’re interested in getting started with syndication, or just have questions, set up a free consultation with one of our attorneys or call us at 949 570 1507.

Want to learn about the offering process and the services Trowbridge Nieh LLP provides but not quite ready for a consultation? Check out this video on youtube, and be sure to subscribe!

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